Why being loan-specific as a loan broker is best

Welcome to another publication of the Finance Founder newsletter!

Where I teach you how to build your own finance business and I give you an inside look at how I’m building a world-class Finance agency of my own.

Before we get to today's newsletter, here’s some of the content I’m consuming that you might find interesting.

What I’m watching

It’s hard to ignore AI these days. If you are a continuous learner, like I am, then you should be spending some of your time learning about AI. Even if you don’t work in technology.

One of the best ways to understand how AI and Large Language Models (LLMs) works is to spend an hour watching Andrej Karpathy’s Intro to LLM video on YouTube.

Being loan specific

If you are researching the competition and how other loan brokers operate, which you should be doing, then you would have noticed that some brokers tend to focus on only one type of loan.

One of the more common loan types for brokers to focus on are SBA (Small Business Administration) loans.

There is an entire sub-culture on Twitter of loan brokers who solely originate SBA loans. Some even niche down further by only working with “searchers”, or people who are searching for businesses to buy.

More on why that segment is a great place to market in my next post.

SBA loans aren’t the only loan type where brokers tend to focus. Some choose to only work on real estate deals, since they are often larger loans and therefore carry larger commissions. Others, zero-in on equipment loans. You can find brokers that focus on just about every loan type.

For example, Ken Hollis, who took my course, is seeing tremendous growth in his business by combining credit repair services with business funding via credit cards. You can find my interview with Ken here.

To take this a step further, some brokers aren’t focused on specific loan types, but they do concentrate their efforts based on other factors such as specific industries (e.g. dentists) and/or loan sizes. The latter of which is what I do.

The benefits of being loan specific

Early on in your commercial loan broker career, it may limit your revenue opportunities to pass on deals that don’t fit a specific niche. However, focusing on a specific niche does have its benefits.

Here are a few that immediately come to mind:

• Expertise - when you focus on one particular loan type or a specific industry, you can quickly become an expertise at working on those niches. I used this approach when I was working as a commercial loan officer at a super-regional bank. After landing a few dentists, I quickly became the go-to lender in town for dentists because I understood their business so well. The same concept works for loan types. If all you do are SBA loans, then as a broker you should be really knowledgeable about all of the specific SBA requirements and processes.
• Concentrated Marketing - whether you are using a referral marketing approach, like I teach, or you are building leads through online ads, focusing your efforts on one segments allows you to put your money its best use. Instead of being broad, you can be ultra-targeted within the right marketing channels.
• Lender relationships - I recommend maintaining 3-5 deep lender relationships. Having too few means you have limited outlets for tougher deals. Trying to send deals to too many spreads you thin. One benefit of being loan specific is that you learn, quickly, how your lenders think about that loan type, or industry. Now, one thing you do have to be careful about, particularly with industry focuses is impacting a lender’s diversification.
• Better commissions - it is simply the facts that some loan types pay better commissions. This can vary by lender, but, lenders tend to pay more for specific loan types. It is also true that if you focus on loan types that tend to have higher loan amounts, e.g. real estate, that your commission checks will be larger. The tradeoff is that more complex loans take time to close.

How to pick a loan focus

I would approach picking an area of focus based on a few factors:

1. Talk to other brokers and ask why they chose to focus on a particular loan type or industry
2. Consider focusing on loan types or industries that the lenders you have the best relationship with like to focus on.
3. Think about areas of focus where you have contacts or experience. If you understand the real estate market, maybe you are a broker there as well, then it makes sense to focus on commercial real estate deals. If most of your contacts are in the trucking industry, maybe you could be their resources equipment loans (that’s where vehicles technically fall for most lenders).

Again, I don’t recommend being too focused early on. Especially if you need, or want, to generate revenue quickly. That will dictate that you will have to work on whatever loan requests you can drum up.

However, as your career progresses, look for a way to consolidate your focus and become the go-to in that arena.

If you’ve found this information helpful, I hope you’ll do two things for me.

1) Subscribe to this newsletter. That way, new copies are delivered directly to your inbox.

2) Share this newsletter with one other person that you think might benefit from the information I share.